More people wait longer to buy their first home

Home ownership, that celebrated hallmark of the American dream, is increasingly on hold for younger Americans.

Short of cash, burdened by student debt and unsettled in their careers, younger adults — and even those not so young still playing catch-up from the Great Recession — are biding time in apartments for longer periods and buying their first homes later in life.

The typical first-timer now rents for six years before buying, up from 2.6 years in the early 1970s, according to a new analysis by the real estate data firm Zillow. The median first-time buyer is age 33 — in the upper range of the millennial generation, which roughly spans ages 18 to 34. A generation ago, the median first-timer was about three years younger.

The delay reflects a trend that cuts to the heart of the financial challenges facing millennials and those slightly older: Renters are struggling to save for down payments as wages have largely stagnated. Increasingly, too, they’re facing delays in some key landmarks of adulthood, from marriage and children to a stable career, according to industry and government reports.

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These shifts help explain why homeownership, long a source of middle-class identity and economic opportunity, has started to decline. The share of the U.S. population who own homes has slid to 63.4 percent, a 48-year low, according to the Census Bureau.

And when young adults do sign the deed, their purchase price is now substantially more, relative to their income, than it was decades ago. First-time buyers are paying a median price of $140,238, nearly 2.6 times their income. In the early 1970s, the starter home was just 1.7 times income.

Millennials are “still very interested in buying a house, but they’re delaying that decision,” said Svenja Gudell, chief economist at Zillow. “Once they start having kids, they begin looking for homes. We’re also finding that — given how much rental rates are currently rising — a lot of folks are having a hard time saving for a down payment and qualifying for a mortgage.”

Low mortgage rates have eased some of the pressures caused by the higher prices. But in many of the hottest job markets, the gap between home prices and median income is prohibitively high.

Around the Silicon Valley tech corridor in California, the median home price exceeds eight times the typical income. That disparity is nearly six times in metro New York City, almost five times in Boston and Seattle and above four times income in Miami and Denver.

Patricia and Rolando Henry are renting a house in Miramar. They’ve never owned a home, but with the banks lending again they think now is a good time to buy. The couple isn’t looking for anything fancy: three-bedrooms, two baths, a backyard. Maybe a pool.

But the cost of renting, of raising four children, of buying groceries and paying off bills means that many homes in South Florida are out of their price range.

“If you can afford to pay rent for $1,300, $1,400, $1,500 a month, shouldn’t you be able to afford a house?” Patricia Henry, 42, told the Miami Herald this week.

She and her husband, 46, run their own janitorial services business with about 30 full-time employees. Even so, Miami’s skyrocketing real estate prices — up 30 percent since 2013 at a time when wages are stagnant — are making it hard to find an affordable home that meets their needs. A low credit score because of credit card debt is hurting their chances, too.

“The down payment is hard enough but then there’s the closing costs and the mortgage insurance and you have to pay the Realtor,” Patricia Henry said. “Fees, fees, fees, fees.”

Most first-timer buyers still depend on personal savings for at least some of their down payments. But rising rental prices have complicated the task of socking away money for a down payment. Fueled by a surge of renters across all age ranges, rental prices nationally have grown at roughly twice the pace of average hourly wage growth, which was a paltry 2.1 percent over the past year.

A result is that those prices are consuming more income. A striking 46 percent of renters ages 25 to 34 — the core of the millennial population — spend more than 30 percent of their incomes on rent, up from 40 percent a decade earlier, according to a report by Harvard University’s Joint Center of Housing Studies. (The housing industry generally regards a figure above 30 percent as financially burdensome.)

“Millenialls are having a rougher time getting into the market,” said Moe Veissi, a real estate broker based in South Miami and former president of the National Association of Realtors.

Some of the cost burden stems from a shift toward people who envision themselves renting for several years and therefore seeking the kinds of amenities more commonly associated with home ownership. Based on searches for rentals on RadPad in June and July, for example, apartments with stainless steel appliances and swimming pools were disproportionately popular in cities with lower homeownership rates such as Los Angeles, Chicago and Washington.

Nearly a fifth of Washington-area searches sought apartments with stainless steel appliances, compared with 5 percent nationwide. More than a third of Chicagoans wanted an apartment with a pool, versus 18 percent nationally.

Job security has become a more central consideration for first-time buyers. The Money Source, a mortgage lender and servicer, examined applications from 5,404 millennial homebuyers. It found that the buyers had averaged nearly 4.5 years in their field of work and had held their current job for slightly more than three years. Those figures point to how critical career stability has become for a generation that entered the workforce during the Great Recession and its slow-growth recovery.

Housing industry experts note that surveys still show a strong desire to buy among millennials, but that their timelines for purchasing depend on achieving more stability in their careers.

“As long as there is the job market to support millennials — just as it has for previous generations — I don’t believe their habits will change,” said Darius Mirshahzadeh, CEO of The Money Source.